Known as an IEO for short, this is where a cryptocurrency exchange oversees the token sale. The benefits are clear: blockchain projects go through a comprehensive vetting process where their white paper is scrutinized, and their crowdfunding drive will also get publicity.
Many investors tend to find IEO platforms more appealing because there's a greater level of due diligence than what's seen with an ICO.
For example, Binance Launchpad is one of the trading platforms that aims to deliver innovation to the crypto market. The site has helped more than a dozen blockchain projects raise capital since launch.
How the Verification Process for IEOs Works
To reduce the risk of scams, exchange platforms that facilitate token offerings will perform a multitude of checks before commencing a sale. After all, if a new digital currency isn't everything it was cracked up to be, the crypto exchange's reputation could be at risk.
As well as poring over the white paper, an IEO platform will examine a number of other factors before giving a blockchain project the green light. Any cryptocurrency exchange worth its salt will begin vetting the team behind the business, put the tech through its paces, uncover unique selling points, assess the tokenomics and gauge whether there's any demand for the business in the crypto space.
If the exchange platform decides to proceed, investors will have to go through KYC and AML measures (Know Your Customer and Anti-Money Laundering checks.) Prospective contributors will also be given full transparency about how the token issuers are progressing in hitting their target.
Pros and Cons of Initial Exchange Offerings
For blockchain projects that generate a lot of buzz, IEO platforms can help them raise capital quickly. Just look at BitTorrent, which managed to raise $7 million just 14 minutes after its listing on Binance Launchpad went live (it was later bought by Tron.) That said, there are some marked differences from initial public offerings and security token offerings you need to be aware of.
Advantages of IEOs:
1. Investors feel more confident. Seeing a digital asset token sale on a trusted crypto exchange can give a project more legitimacy.
2. IEO projects are more likely to run smoothly. As well as overseeing the token offering, IEO platforms can offer marketing and development support.
3. Initial exchange offering investors have a much more user-friendly experience. Compared with ICOs, contributing to blockchain projects is easier because IEO platforms tend to be better designed.
Disadvantages of IEOs:
1. Crypto projects will have to pay listing fees. Start-ups may also have to give an exchange a percentage of the tokens in the form of a commission.
2. Some cryptocurrency exchanges cut corners. Because of the booming initial exchange offering market, there are platforms that don't do due diligence to a high standard. Be sure to do your own research, too, before investing in an IEO.
3. Pump and dumps are still a risk. After a token sale, some digital assets rise in value extremely quickly and then fall dramatically.